This graph from the New York Times shows how much tuition has gone up, way more than other costs. They offer several reasons, but since they are focusing mainly on state schools, public funding cutbacks appears to explain a lot of it. Link -via TYWKIWDBI

The more federal aid increases, the more tuition increases. The universities are going to consume all of the federal aid available - they're not going to leave it "on the table". Pumping more and more dollars into higher education is simply inflation - there's not a corresponding increase in the quality of the product. Similar to what we've seen in government education at the elementary and secondary levels.

Is it tuition costs are skyrocketing compared to other products or is it that government support kept the costs artificially below what they would have been and now they are normalizing to where they would have been all along?

There are lots of factors. Two that I think are often overlooked are for profit universities and experience expectations of students.

For profit schools have exploded, probably mostly because of the ease of obtaining federal aid that Chuck mentioned. Their much higher tuitions have created breathing room for public universities to charge more. Traditionally universities mostly marketed themselves through alumni, word of mouth, and direct mail to potential students who had expressed an interest in the school. The for profit schools have changed all of that, using all of tricks in the Madison Avenue playbook. It's shocking how many students will enroll in a low quality program at a for profit school when they could enroll in the same program at a reasonable quality public university near by for a fraction of the cost. The public universities are simply not use to using slick tv advertising and psychological research to market themselves.

Student expectations are also a factor. The quality of accomidations, of classroom space, and of recreational activities have become sort of an arms race between schools. Some times this is with the explicit help of the student body. The students at Georgia State University recently voted to increase their manditory fees by hundreds of dollars so they could have a football team. For BCS schools football can bring in lots of money but for a school like GSU it's money students could have used to pay for rent or groceries. But the students wanted a football team and voted that everyone attending GSU would have to pay for that luxury. This of course didn't stop many of the same students from joining the Occupy movement and shouting about the high cost of college.

Speaking of sports, they can have a bad effect on student choice. Some states such as California push really hard for students to go to a community college or a two year school to take their core classes at much lower expense than a large flagship university. But in parts of the country where kids swear allegiance to a college team around the time they learn to walk, the thought of attending a different school, even if just for a year or two, is unacceptable. They've waited a long time to get student football/basketball tickets and they want to have them all four years they're in college.

Colleges of today are the same as the guilds of yesterday. Colleges have a monopoly on how knowledge can be "legitimately" obtained. On-the-job training used to be sufficient in many professions, now you can't get the job even if you are qualified, unless you can prove you got the knowledge by the proper means (a degree from an accredited college). It's bogus, man.